Will rate cuts happen in 2024? Here’s why there’s renewed hope

Nick Sundich Nick Sundich, December 1, 2023

Will rate cuts happen next year? This is a question all investors are asking, whether they invest in equities, properties, both or even other asset classes – because interest rates affect them all. There has been hope for next year, but not as much in the last month since the RBA hiked interest rates again. Still, all hope is not lost.

 

Will rate cuts happen next year?

If by next year it is the calendar year, then it is all but certain that it will, even if it is not until the December quarter. One economist, CBA’s Joseph Capurso was reported as predicting the US economy would enter a recession that would force the Federal Reserve to cut rates. If you look at the US economic data, with 5.2% GDP growth, and believe the Fed is done raising rates, there’s every right to be sceptical.

Nonetheless, the bond markets are more optimistic, pricing in a 1% cut next year, starting in May. CBA is predicting 2.5% over 2024 and 2025. NAB and ANZ are both predicting 1% in the second half of 2024.

 

What about Australia?

OK, but is it a certainty Australia will follow? After all, the most recent interest rate rise depicted the RBA is willing to chart its own part.

It will all depend on economic data in Australia, particularly if inflation goes outside the 2-3% target range, in the other direction. Australia’s Big 4 Banks expect the easing cycle to kick off by the end of the year, but only once rates start declining in Australia.

So, in short, the answer to the question ‘Will rate cuts happen next year?’ is: Probably yes. As to when is anyone’s guess, but it won’t be before the US Federal Reserve starts. Watch this space.

 

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